SEBI Overhauls Market Plumbing: Broke Up Brokerage Rules and IPO Mechanisms to Boost Investor Confidence

SEBI Overhauls Market Plumbing: Broke Up Brokerage Rules and IPO Mechanisms to Boost Investor Confidence​

The Securities and Exchange Board of India (SEBI) has initiated a sweeping review of market infrastructure, setting forth several regulatory agendas aimed at improving overall market efficiency. Speaking at the ICICI Securities Investor Conference, Chairman Tuhin Kanta Pandey detailed plans spanning from refining broker net-worth requirements to enhancing IPO price discovery mechanisms.

The regulator is committed to promoting "optimum regulation," ensuring that processes are efficient while strictly protecting investor interests and preserving market integrity. This comprehensive review aims to reduce operational friction for various intermediaries operating across the financial ecosystem.

Reforming Brokerage Standards and Listing Practices​

One of the key reforms under examination involves the variable net-worth requirements for stockbrokers. SEBI is currently reviewing these frameworks, intending to ensure that capital needs accurately reflect an intermediary's operational scale and inherent risk profile.

Furthermore, stockbroker regulations are being reviewed and simplified. The regulator intends to align rules with evolving market practices by implementing several measures. These include a common reporting platform designed to eliminate duplication across exchanges, alongside developing a rationalised penalty framework.

Enhancing IPO Price Discovery Mechanisms​

SEBI is actively working on improvements to the price discovery process for initial public offerings (IPOs) and relisted securities. The regulator is examining how to strengthen the pre-open call auction mechanism, ensuring that market openings are more stable and efficient for investors.

In addition to IPO reforms, SEBI has made certain regulatory flexibilities possible. Founders undertaking reverse-flipping transactions have been allowed to retain employee stock options granted prior to the IPO filings. The norms for anchor investors have also been expanded significantly to accommodate participation from large FPIs operating multiple funds.

Modernizing Corporate Bond and Fund Market Rules​

The regulator is taking steps to introduce more advanced structures within specialized markets. A working group is finalizing operational details to roll out a market-making framework specifically targeting the corporate bond market, aiming to substantially improve liquidity in this segment.

In parallel, SEBI and the Reserve Bank of India (RBI) are collaborating on introducing derivatives that will be linked directly to corporate bond indices. For mutual funds, SEBI is proposing a more practical framework allowing them to utilize intraday borrowing not just as a contingency measure, but as a proactive tool for managing temporary liquidity mismatches.

Streamlining Market Operations and Oversight​

Beyond these structural changes, SEBI is focused on reducing administrative burden across the board. The regulator is working with custodian banks and the RBI to significantly reduce both registration and onboarding timelines for Foreign Portfolio Investors (FPIs).

The initiative extends to rationalising obligations for research analysts. SEBI is seeking to ease compliance requirements, including reviewing norms such as call recording during institutional interactions, making the operational load lighter for industry professionals.

Market Growth Highlights and Investor Base Expansion​

These regulatory efforts come against a backdrop of massive market expansion. According to Pandey, equity issuances touched ₹4.5 trillion in FY26, while IPOs collectively raised approximately ₹1.9 trillion across 366 issues. Corporate bond issuances have exceeded the mark of ₹9 trillion during the year.

The Indian financial landscape has matured considerably over the last decade. Market capitalisation has seen a remarkable increase, rising from 69 percent of GDP to approximately 128 percent currently. Mutual fund assets have surged impressively, expanding from ₹12 trillion to more than ₹80 trillion. Furthermore, the investor base in the securities market has reached around 145 million, demonstrating consistent growth at over 20 percent annually.